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Archive for December, 2009
December 2009 News Brief
EYES WIDE SHUT
Welcome to Financial Situational Awareness.
I promise to give you food for your financial health.
Today’s concern centers on the commercial real estate market. Take a look at the charts for the following ETFs that invest in commercial real estate: iShares FTSE Industrial/Office Index (NYSE: FIO), Vanguard REIT Index (NYSE: VNQ) and Dow Jones Wilshire REIT (NYSE: RWR).
Look at the 6 and 12 month charts carefully and note the behavior in March 2009, June 2009 and October 2009 as denoted by the red stars. The significance of these dates, in order, are massive government bailouts and interventions, which stemmed the tide of red ink about to bury the Real Estate and other markets, the end of the first moratorium on foreclosures and the end of the 2nd moratorium on foreclosures.
At the end of each of these periods, government intervention took place to prevent banks from taking action on increasingly delinquent loans. Ostensibly to give those in trouble time to get their house in order.
Let’s apply a bit of logical thinking to this shall we? So you’re three or more months in arrears on your mortgage. This is likely because you’ve lost your job and have had to dip into your rapidly diminishing savings or have had a accept a lower paying job just to get by. To minimize the hemorrhaging, you stop paying the mortgage. With no job prospects, a three month moratorium does you no good. It’s a delay of the inevitable. Take this idea and apply it to the commercial Real Estate.
Consider the ProShares UltraShort Real Estate (NYSE: SRS) chart. Simply looking at the chart for SRS tells us that the cracks in this way of thinking are just beginning to form. This ETF invests in the inverse of the DOW Jones REIT . This represents a gauge as to the trouble in the commercial real estate market.
As a double short ETF, for each % fall in the REIT(RWR), this ETF rises by 2%. What is notable is that for the first time in some time we’re seeing this ETF break the 20 day_and_50 day EMA in the positive direction. Should this continue it would be a sign of an impending commercial RE collapse. A break above these with a follow through towards the $9.00 area would be a telling sign of cracks in this market.
Keep your eyes wide open for these canaries in the coal mine.
Further reading material on the state of real estate in America:
http://www.reuters.com/article/idUSN0825553320100108